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olsmeister writes "A Bitcoin user allegedly has had $500,000 worth of Bitcoins stolen from him. A hacker supposedly gained access to the user's home computer and managed to get the user's wallet.dat file, which contained the cryptographic keys that allowed him to drain the user's balance."

True. Sort of. The victim should know exactly what the recipient address of those ill gotten gains are.

Technically, if I understand the way that bitcoin confidence works, half the damn bitcoin network should know about the details of the transfer.

The problem of course is figuring out who the hell the address belongs to. That is the hard part.

As I understand the technology, each and every one of those bitcoins now contain their transaction history, so -in theory- they could be "flagged as stolen", IF there were a central authority that took care of that thing, but of course there isn't as that's the point of bitcoin, no central authority.

I honestly confused if bitcoin technology is for this though. Technically, this isn't all that different from the victim leaving his front door open, and a robber coming in to steal $500,000 worth of jewelry or the like. If your home gets broken in to, you can't blame the jewelry itself for being stolen, that's what thieves -do-, steal stuff. This thief just happened to break in to his computer instead of his house. So therefore you may not want to store $500,000 of bitcoin on your own home pc just like you probably don't want to store $500,000 of jewelry in your dresser drawer. Maybe you keep a few pieces at home, and keep the rest in your safety deposit box?

I know that bitcoin technology provides for cloud-based "banks" of a sort. If they have been implemented yet, I do not know.

A better analogy would be leaving the front door closed but unlocked (like having a firewall on your computer), but otherwise pretty much, yeah. You shouldn't have $500k worth of jewelry and $100 bills sitting in a known location in your house, and likewise it's pretty stupid to have $500k worth of BTC in an unencrypted, insecure wallet.dat file.

It's relatively easy to make a new wallet unknown to anybody, copy the first address made by this fresh wallet, send that address most of your coins, then encrypt your "savings" wallet and delete the unencrypted copy. Heck, put the encrypted "savings" wallet on some USB keys and a few CDs/DVDs and put them in a safety deposit box if you want to. You can continue sending payments to that address as much as you want.

Technically, if I understand the way that bitcoin confidence works, half the damn bitcoin network should know about the details of the transfer.

Which is also probably why the thief knew where to go. It's a security hole.

Not that the user should have known this, but dontcha think if there was $500k involved that a little curiosity on how it works and how to encrypt it better (put the.dat file in TrueCrypt container and make copies)? Hell, I think carefully before putting an extra $100 in my pocket for

Technically, if I understand the way that bitcoin confidence works, half the damn bitcoin network should know about the details of the transfer.

Which is also probably why the thief knew where to go. It's a security hole.

Ok, parent was already wrong, and you are more wrong.

First, yes, they knew which account it went to, but without sniffing the traffic of the entire Bitcoin network, it's much harder to know which machine it went to. It seems unlikely that the Bitcoin network itself is vulnerable that someone could send an attack to a Bitcoin address without at least getting an IP address out of it first.

Maybe if you were a neighboring peer, you could notice a lot of transactions coming from one particular peer, but you still don't know if those transactions originated from that peer, and it also doesn't help you, since transactions originate from the sending peer (for obvious reasons), and are broadcast to pretty much the entire network. So even if you could track where a transaction originated from by sniffing traffic, that doesn't tell you where it went -- it could, in fact, be anywhere in the entire network, or in an account which is physically disconnected, or even in an account which doesn't exist (user mis-pasted the destination address).

To get anywhere close, you'd have to be able to sniff pretty much all of the originating peer's traffic, including other channels like web and IRC where the transaction was probably negotiated. Even that doesn't help you much, since you now have the problem of tracking a website, forum user, or IRC user back to the actual IP address where the coins are kept.

Now, all of this stuff is possible, certainly, but none of it really has much to do with Bitcoin being anonymous or not. At least, it provides no new problems over traditional banking, and is actually somewhat safer. If I could somehow sniff your communication with your bank (though admittedly, Bitcoin IRC and forums aren't always encrypted, and are more often TORed), I could drain your account whether you're the sender or receiver, and I wouldn't need to break your machine if I could somehow intercept your credentials (MITM). Banks can use SSL, but you could also refuse to trade Bitcoins over any forum which doesn't.

So, TL;DR: There's no way that the entire Bitcoin network knowing about a transaction (or about every transaction) is going to lead to knowing which physical machine to attack.

Not that the user should have known this, but dontcha think if there was $500k involved that a little curiosity on how it works and how to encrypt it better (put the.dat file in TrueCrypt container and make copies)?

Um. Yes. And yes, the user absolutely should've known that. WTF were they doing putting $500k in Bitcoin if they didn't? It's certainly enough to afford some extra hardware so you can do air-gaps.

I mean, I don't know what sort of precautions I should take before carrying $500k around in my pocket (or in a briefcase), but I'd bloody well find out before I did so.

The victim should know exactly what the recipient address of those ill gotten gains are.

Assuming there's a single address.

Technically, if I understand the way that bitcoin confidence works, half the damn bitcoin network should know about the details of the transfer.

Sure.

But there's two problems here: First, addresses are trivial to create, and generally you create a new one per transaction. So it could've gone to dozens of accounts.

Second, you can't prove the person who claims to be robbed didn't transfer the money to another account they own (like the "savings" account I describe below), and even if you could track the account they went to, it's much harder to figure out who actually owns that account. And maybe they've already spent them -- in which case, you have similar problems again; did they actually buy this, or simply transfer the money to another account they own?

I know that bitcoin technology provides for cloud-based "banks" of a sort. If they have been implemented yet, I do not know.

I think the main idea of those is for people who don't want to install the software and manage it themselves. I don't think they give you any additional security. If anything, they reduce your security, since an attacker can either steal your username and password (with or without breaking into your machine) or attack the online bank in pretty much any way (including being the online bank).

By contrast, if you run your own security, you have options. If I had a significant amount of Bitcoins, I'd create a second wallet and keep it encrypted and probably offline, and use it as a "savings" account. I could trivially generate a few hundred accounts, then put the wallet on a flash drive or two, and then not need to plug it in until I need to withdraw, since I can send coins to it without it being on my or any machine.

Of course, you have to be equally careful to actually make backups, since if your wallet.dat is on a drive which fails, or even if there's just a bad sector in the middle of it, your money is just as gone as if someone stole it. I'd like to think that this sort of thing would be incentive for people to finally start giving a fuck about security. Unfortunately, it looks like it's instead going to be a disincentive for people to adopt Bitcoin.

Well not in this case if thieves attempt to cash out with $500,000 of real money and the entire Bitcoin economy slumps. Of course it would be interesting to see that in action since it will act as a dress rehearsal for when the real slump comes.

Part of BitCoin is that ever transaction is followable to it's original creation (i.e. the batch of 50 bitcoins created when a block is created). While it may not be possible to tie the account holder to his key, it should be trivial to track the 'stolen' bitcoins through each transaction they are used in, as all transaction logs are public by design. Harder would be to tell whether the intermediaries in each transaction are dummy accounts involved in an attempt to 'launder' the bitcoins (even though they'r

You can't track the money specifically, though. You can see what accounts it was sent to, but any money coming out of those accounts becomes suspect. There is no connection between the money coming into an account and the money coming out of an account. If the thief does his laundering right, eventually the money will fan out to accounts that also process legitimate transactions and you'll lose track of where it went. Once the money reaches an account that already has a balance, it becomes indistinguishable

Someone who A) has the money to risk and B) is less risk averse than you?

Investing heavily in anything always looks stupid to anyone who doesn't think its worth it. If everyone agreed on what was a good idea, then wouldn't we all be investing in the same things all the time?

So the real answer is C) Anyone who has the money and believes bitcoin value will rise.

I have been holding a nonzero bitcoin balance since december and, I am pretty happy with that decision so far.

He was an early adopter. When bitcoin value exploded what was little more than $20 worth of digital money exploded to $500,000. Effectively, he was exactly the type of person many expressed concerns about bring the real people who would benefit from bitcoins.

Joking aside, please correct me if I'm wrong below, but this is my understanding of some of the principles behind bitcoins. I have tried to read the faq and the wikipedia page but I'm not expert enough on cryptography and so to actually understand much of what they're talking about. Yet I'm interested in the idea of having a digital currency around, which is what bitcoin could be.

There are now apparently two copies of a whole lot of bitcoins around (one on the victi

The wallet is stored in a predictable location, %APPDATA%/bitcoin/wallet.dat

There is nothing tying the wallet to a particular machine (e.g. encryption).

As such all one would need to do is steal the wallet, either through a trojan or possibly even a browser exploit (which guessed the APPDATA path by trying someone's likely login id) and that is that. Their copy of the wallet can initiate th

The thief transferred the Bitcoins out of the user's account and into his or her own. At that point, it was too late for "allinvain" to do anything.

But to answer your other question.. what if two people spend Bitcoins at approximately the same time? Well, the "network" spreads the transactions pretty quickly. So the spending would have to be near instantaneous to be confusing to the network. Even a 2 second head start will likely have one transaction HIGHLY favored over the other. None the less, the network can hold two transactions, temporarily, that are in conflict.

And then the miner who solves the next puzzle is the tie-breaker. No miner will have two conflicting transactions. Each miner would reject the 2nd conflicting transaction, and, although different miners may consider different transactions as the "first" one, there will likely be one transaction that is highly favored over the other, and that's the one that is likely to be honored.

It's the same concept as if you have $100 in your checking account, and you mail two $100 checks to two different people. Who wins? Most likely (but not always) the one who receives your check first. Most likely (but not always) the one who cashes it first. And the bank will make an arbitrary decision if they both come in at approximately the same time.

The difference is, with a check you won't know for days. And even after a week, the bankers/government can come and reverse the transaction later. With Bitcoin, you will know within 10 minutes with some degree of certainty, and within an hour with almost absolute certainty.

It's not obvious to a lot of people- folks think objects have value. Listen to any gold bug discuss the intrinsic value of gold, as if it has some inherent value beyond what people will pay you for it. Or, if you'd prefer, all the people who can't sell their house because they can't get what they paid for it and it's "Worth more"

Lots of people assume that various objects (including paper or virtual money) have value outside of what you can get in exchange.

Baseball cards have individual value that varies depending on what card you're talking about. Condition plays a major role in the determination of that value, and in general the value lies in the item itself.

Bitcoins have none of that. In every facet imaginable, they are a currency. They have no intrinsic value outside of being able to exchange them for something else.

You say that like it's a bad thing. I'm not into Bitcoins, but I don't think any government should be a party to every transaction I make. "Mony laundering" is just an elastic propaganda term for any kind of financial privacy.

You have five hundred thousand dollars in BTC. Goldman Sachs it. Sell some, buy back at a higher price--from yourself!--then sell at higher, buy at higher, sell at higher... buy some from the market, some from you; then sell back to the market, buy about half your own stock, let others catch up... your actual money bobbles up and down, so does you BTC... sink yourself, get down to $400,000 by loss, but with the same BTC, except now those BTC are worth $7.5M, and start selling like crazy at the new infl

Actually, that's pretty accurate. Since it isn't a state-sanctioned currency, it doesn't really have any precedence in law, just like other virtual currencies. There really are thieves and conmen (aka hackers and phishers) trying to get your bitcoins.

Come on Slashdot, I love Bitcoin and all, but enough already with the blatant advertisements! Is there anything other than allegations here? Even if it did happen, is there anyone who actually expects the police to be able to do anything about this?

If team bitcoin wants to succeed a necessary(but not sufficient) measure will be the development and reasonably easy and inexpensive availability of a suitable keystore peripheral.

For PKI purposes, the use of specialized storage modules has(at least for very high value keys in setups run by the competent) been going on for years. For bitcoin, you'd need something somewhat similar; but cheaper, easier to use, and better adapted for transaction purposes.

Any desktop OS (and most home/casual server computers and backup schemes or lack thereof) Just Isn't Suitable for the storage of data that are worth much of anything. Even if the hackers don't get you(and for ~$500,000 a mere absence of remote holes attackable with off-the-shelf toolkits won't necessarily save you, that is getting well into personal-attention-from-one-or-more-competent-operators territory...) an HDD crash, corrupted backup, house fire, etc. might.

At a minimum, you really want your keystore to be a separate, small footprint, device that accepts bitcoin payments, and can listen to requests to issue payments; but allows the user to review the requested payment(size and target) on an independent display and confirm/deny it on an independent keypad.

Unfortunately, bitcoin's rather clever cryptographic architecture just isn't as secure as the math suggests so long as the private keys are being stored in pitifully insecure ways. On a large scale, we've seen goofy crap like MMORPG logins being stolen automatically by assorted malware. If bitcoins achieve some measure of popularity and value, it won't be long before wallet.dats are being cleaned out in the same way, with especially high-net-worth targets being attacked personally.

From what little I know, the bitcoin system is decentralised and based on network consensus. Does that mean that bitcoin clients need to be online all the time in order to keep up to date on what's happening, and does that mean that your wallet.dat needs to be accessible to the client all the time? If so, storing it on a USB stick isn't going to work. Sounds like the network consensus model requires this element of vulnerability, in a similar way that a modern jet fighter can only manoeuvre because it is ae

And all transfers from your savings account wallet to your spending wallet should be done on an offline computer so that your savings account wallet is never on a computer connected to the internet, otherwise you risk a digital intruder keylogging your passphrase to decrypt the savings account wallet, or just copying it while you have it decrypted or copying the unencrypted file from bits on the drive (where you erased it, but didn't shred it because you probably use a journaling filesystem).

Fiat money is money that has value only because of government regulation or law.

That seems more in accordance with reality. As weak as the dollar has been lately, it would be very difficult for it to lose all or most of its value overnight, unless there was a major world catastrophe, because it is backed by the U.S. government. But (and someone correct me if I'm wrong) Bitcoin could crash any time because its value is given to it entirely by (gullible) people's beliefs. Heck, even stocks are backed by something, a company's performance, and those

US currency lost half its theoretical purchasing power in one day in (I believe) 1938 when the US government re-assigned the dollar-to-gold exchange ratio to be nearly half what it was before... which was of course was sort of a thumbed noise at the populace at that point anyway as they had outlawed private gold ownership 6 months beforehand (no, really. look it up. private gold ownership didn't come back until the 1970s).

Bitcoin is unofficial currency. In many respects, it is essentially the same as WoW money. We have seen cases and claims of theft and other issues surrounding the use, abuse and exchange of World of Warcraft items, assets and cash for real world money. Law enforcement has, in those cases, abstained from much if any intervention in those matters. At the moment, I suspect that Bitcoin is viewed as similar. This may change but at the moment, I'm thinking that this $500,000 burglary will not be recognized

a) who would want to collect half a million $ worth of experimental currency that can't really be used widely?b) why would you want to keep that much money as a virtual currency?c) why would you want to keep that wallet accessible on your PC and not on some external, removable media, or at the very least under tight lock e.g. via encrypted file?

and finally,

d) if it really did happen, he deserved losing it for being and idiot, see points a-c...

I've long longed for a USB hardware device containing a small crypto-processor, a public/private keypair, and a button. Given a standardized interface (as standardized as USB block-devices) it would make a perfect key-solution to keep in my physical keychain to identify myself in all kinds of circumstances.

* Need to sign a bitcoin-transaction? Let the software queue a request and press the button.
* Need to identify yourself on the web? Again, let the site send a challenge, the browser forward it to the key, and press the button. (Possibly already possible through SSL?)

As an extension, the key could hold two keys of different "level". A common key, not requiring the button to identify me to less-sensitive services, and a button-locked key for more important purposes.

For online banking, extend the key with a small display to show exactly what you're signing, and you get rid of all the manual transactions.

I've long longed for a USB hardware device containing a small crypto-processor, a public/private keypair, and a button. Given a standardized interface (as standardized as USB block-devices) it would make a perfect key-solution to keep in my physical keychain to identify myself in all kinds of circumstances.

This thread was on Reddit 2 days ago. Here's the link: http://www.reddit.com/r/geek/comments/hzrcc/bitcoin_user_loses_25k_bitcoins_when_his_machine/

To summarise:
* it could've never been $500k, that's purely theoretical. In practise it would be worth far less.
* "allinvain" is a true idiot. He was keeping the coins on his main computer which had a virus on it. He was browsing the web and IRCing with it. He found the trojan the night before, had seen that his payout address was changed to another and then to fix this he "changed it back" and went to sleep. He then "moved [his wallet] to a Ubuntu linux vmware install. On the same machine."
* It's probably a hoax

This would explain the laundering activity that has been going on the past 24 hours. The equivalent of the entire market of bitcoins has been transferred to hundreds of accounts in 50k+ increments. Only 6.5m BTC in existence, over 8m BTC in transfer activity. If any of that starts selling, it will collapse the market down to nickels and dimes.

Yes, it's an actual PC World article, but it still serves as an ad. I don't know whether the article was written by a shill, or whether PC World got duped, or whether the submitter is being the shill, or whether there's just an overeager fan somewhere in the chain, but this article has the same effect as an ad. What makes it an ad is not the statement that $500000 was stolen, but the implication that it could be worth $500000 in the first place. The story is selling the idea that Bitcoin is real and that when someone steals it that's as meaningful as someone actually stealing real money. So in the guise of reporting a theft of Bitcoins, it's pushing Bitcoins.

Consider how anyone would behave if it was really worth $500000. If you suddenly got $500000 in cash tomorrow, would you put it all into Bitcoins? Of course not. You'd bank it, maybe invest some, and only put a small portion into Bitcoins. Then logically, if your Bitcoins suddenly became worth $500000, you'd take *out* as cash the amount that you'd leave out if it started as cash in the first place. The fact that he had $500000 of Bitcoins in the first place and didn't convert into $490000 of cash and $10000 of Bitcoins shows that it wasn't ever really worth $500000.

Now you need to give the editors some credit here. If they were financially invested in pumping Bitcoins up, this article certainly would not help.

I mean people wouldn't imagine this is good publicity for Bitcoin, would they? Unless someone would go under the logic of, "Wow, people have so much of these things, I should get in on this game." I would like to think the reasoning here is. "Wow, digital property on a computer is so easy to steal."

There is money to be made on both sides of just about any financial fluctuation.

And although I'm sure the staff here happily accepts paid stories, it would suprise me that they were sharp enough to manipulate the bitcoin market in this way. If you can't sell geek news, then you can't sell servers, then you can't sell generic software, then you can't sell Sourceforge, then you can't sell "The Online Network for the Global Geek Community"....what else are you going to do?

Not really. It's mainly backed by the expectation that the US will honor its debts in the future, and will be able to do so because the US economy is productive enough to provide the resources to do that. Precious metal (and foreign currency) reserves are relatively minor in the big picture.

The short and dirty version is "If you asked a bunch of libertarians to design a digital currency, this is what you'd get". Which isn't a wholely bad idea of course, but obviously has some issues that need to be worked out.

The short and dirty version is "If you asked a bunch of libertarians to design a digital currency, this is what you'd get". Which isn't a wholely bad idea of course, but obviously has some issues that need to be worked out.

The short and dirty version is "If you asked a bunch of libertarians to design a digital currency, this is what you'd get".

I'd amend that to "If you asked a bunch of libertarians who wanted to put the world's economies back on the gold standard...". Because really, when you think about it, that's what bitcoin is supposed to be - digital gold.

Consider the parallels to gold coinage: a finite worldwide supply, "mining" becomes more difficult as time goes by, and the amount of money in circulation can be reduced by coins being hidden or lost, but never artificially increased. Furthermore, the statements you'll hear from the BTC crowd are exactly like the statements from the gold money crowd - bitcoins will herald in a new era of economic prosperity, bitcoins cannot be manipulated by governments creating more of them, etc. In effect, you've got a community of speculators who are trying to make their own "gold", and get rich by doing it, provided they can make the rest of us buy into the idea. (The historical failure of gold-backed currency in modern economies seems to completely escape all of them.)

However, there is a very big difference between BTC and gold. While it is true that you cannot create more BTC, anyone (or any government) can certainly create a competing digital currency that has as much "value" as bitcoins. Who is to say that a bitcoin has more or less value than any other cryptographically-signed digital coinage? Nothing more than public opinion, and that can be manipulated.

Ultimately, I expect the BTC standard to fail, and when it does, you'll hear exactly the same claims of government / commercial manipulation / sabotage that you hear from believers in gold currency. In that respect, there will be no difference in BTC and gold at all.

Which is itself silly in the first place anyway, because aside from a money sink in jewelry, and some uses in electronics and space vehicles, Gold isn't all that valuable. I don't understand why libertarians (and society in general) hold it in such high esteem.

Its main draws seem to be:1. it's pretty.2. it doesn't react with much so it tends to stay pretty.3. other people say it's always been valuable so I guess I'll agree with them that it's always going to be.

Given that the attacker, unless a total putz, probably covered his tracks at least reasonably well, and given that the victim is nobody in particular, I also would be surprised to see much effort put into the case.

That said, while I doubt that the feds have much interest in bitcoins qua currency, it is hardly the case that "hackers stealing data that possess value based more or less on people's belief that they do" isn't something you can interest the feds in. It would be a fun test case, for instance, t

It's likely that he got the majority of those coins when they were worth much less. The $500k figure would be from using today's market price of ~$20/BTC, while even a mere 6 months ago they were less than $1 apiece. It was also much easier to "mine" them at that point in time.

On a side note, I believe it is still illegal to make your own currency in the US. I don't see the government spending too many man hours solving this. If the claim is real, I think that person will never see that cash again.

As far as I can tell, the person didn't actually lose any real money. They lost BitCoins, which if they were converted into real money would allegedly be worth $500,000. In reality, the only thing that was actually "lost" was the time and energy used to "create" the BitCoins.

Some idiot had his computer open to abuse and lost private data that correlates to money (and the 000,000$ figure is nothing but guesswork - he didn't "invest" that amount of money in Bitcoin only to lose it - that's what he *estimates* his stuff was worth if he had tried to sell it and all he "spent" was various amount of CPU cycles amounting nowhere close to that figure). Basically, he has his "credit card" number stolen. That's not a breach of the system, just a breach of his inadequate security procedures surrounding something he considered to have a value of several years earnings.

Basically: Pillock.

Having said that, I have to agree with the OP. In the last year, I've come closer to never returning to this site again than I ever have in the past. I don't even know why I have it on my "always open" list of sites, probably force-of-habit more than actual interest.

If it was just stolen, can't the owner take a backup copy and immediately convert them all to real cash?

How exactly is he going to immediately convert it all to cash when there aren't enough askers for that much bitcoin? Despite claims of how much all this bitcoin is worth if no one is going to pay the exchange it is nothing but worthless bits.

If I understand the technology, if he were to try to sell bitcoins from a backup.dat, the bitcoin network would reject the transaction as fraudulent saying that he no longer owned the coins he is trying to transfer.

The immediate transfer would go through, and over the next 10 minutes both parties would recieve thousands of "I don't agree that this transfer is valid, invalidate it" messages from other nodes on the bitcoin p2p network.

You can't mine directly in the client anymore. Check bitcoin.org's mining section. You need specialized software, and because the difficulty is so high nowadays you will have to join an online mining pool which will combine your efforts with other's.

It's not even for drug dealers! Drug dealers want MONEY for their drugs. This is only for the people at the top of the pyramid. You go somewhere trying to buy drugs with bitcoins and you're going to get stabbed.